Unions upset by interest cut delay

UNION leaders and company bosses in Wales yesterday differed on whether the Bank of England was right to resist calls for a cut in interest rates to shore up confidence in the wake of the Northern Rock crisis.

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UNION leaders and company bosses in Wales yesterday differed on whether the Bank of England was right to resist calls for a cut in interest rates to shore up confidence in the wake of the Northern Rock crisis.

The bank’s Monetary Policy Committee kept the base rate at 5.75%, despite pressure to follow the example of the US Federal Reserve with an immediate cut in the cost of borrowing.

But economists said there was a strong chance that a reduction to 5.5% will follow in November.

The MPC now has more time to assess the impact of money market turmoil on consumer and economic confidence. Tighter lending conditions have already forced up the cost of some mortgages, while a recent survey indicated the recent run on Northern Rock had knocked spending intentions among UK consumers.

The Halifax said yesterday that house prices fell by 0.6% during September as the property market showed signs of running out of steam.

Andrew Semple, spokesman for the EEF, the manufacturers’ organisation said: “The decision to hold rates is the right one at this stage and will be supported by our members in North Wales.

“We have seen steady growth in recent months but there are signs that we may be seeing a downturn in international markets and that could eventually hit the UK. There is now a growing feeling that interest rates have peaked.

“The goal posts have moved and the Bank must stand ready to cut rates if the recent turbulence in the financial markets begins to hit business investment and growth”.

But Derek Walker, Wales TUC head of policy and campaigns, said: “This is disappointing. A cut today would have protected hard-earned economic growth, given a boost to manufacturers in Wales and brought some relief to hard-pressed home owners.”

The British Retail Consortium led calls for a rate cut this week, arguing that five rate rises in the past year had taken their toll on consumer confidence.

Members of the MPC will have been wary about trimming interest rates at a time when high oil and food prices could keep inflation above the government’s target of 2%.

Ian McCafferty, CBI chief economic adviser, said: “An interest rate cut was unlikely this month as there are, as yet, few signs of any serious damage to the real economy from the upheaval in the money markets. What’s not in doubt is that the next move will be down.”